Imagine an economy in which: (1)pieces of paper called yollars are the only thing that buyers give to sellers when they buy goods and services,so it would be common to use,say,50 yollars to buy a pair of shoes; (2)prices are posted in terms of yardsticks,so you might walk into a grocery store and see that,today,an apple is worth 2 yardsticks;and (3)yardsticks disintegrate overnight,so no yardstick has any value for more than 24 hours.In this economy,
A)the yardstick is a medium of exchange but it cannot serve as a unit of account.
B)the yardstick is a unit of account but it cannot serve as a store of value.
C)the yardstick is a medium of exchange but it cannot serve as a store of value,and the yollar is a unit of account.
D)the yollar is a unit of account,but it is not a medium of exchange and it is not a liquid asset.

Question

Quizplus · Accepted Answer

The yardstick serves as a unit of account because prices are posted in terms of it. However, it cannot serve as a store of value because it disintegrates overnight. The yollar is the medium of exchange in this economy, as buyers use it to purchase goods and services. However, it is not a store of value and lacks liquidity since it cannot be used after 24 hours.

Imagine an Economy in Which: (1)pieces of Paper Called Yollars